Something is not right with this world

Last year, virtually the entire financial sector in the world went belly up. 12 months on, Goldman Sachs reports a quarterly profit in excess of $3bn. Yes 3 BILLION DOLLARS. In one quarter. Profit

Goldmans is the one bank everybody loves to hate. But even by their standards, this is something. The last two quarters have seen the highest quarterly profits in their 140 year history.

Now, the economics I have been taught in college was that there is a positive correlation between risk and reward. If they have made such profits, they must have taken wild risks. Just a year after coming within an inch of annihilation, only a complete lunatic would take such risks so as to make this mind boggling profit.

Or else, the economics I was taught is wrong. In the post meltdown world, there is easy money to be taken. Without taking undue risks. So the reward for bringing the world so close to an abyss, is to be able to make unbelievable money by just being around and counting the cash; and the rest of the economy, including the taxpayer, be damned.

Oh yeah, they will say they are just so damned good that they have “earned” this money. Maybe, but still …They are not the only ones printing the money. Some others are too; JP Morgan made a tad more than even Goldmans.

Either way, something is not right in this world.

Recession and the family business

The recession has been brutal for many businesses, but perhaps none more so than small family run businesses. In the land of entrepreneurship, the United States, about 90% of all businesses are actually family owned and run; mostly small businesses with less than 20 employees. The mom and pop store, the restaurant round the corner, the self employed consultant. They have been the massively affected as this article lays out.

This blog is not meant to be chronicler of the world’s woes, If the last couple of posts have left you thinking that way, its not meant to be for long. But its just that we, as the fortunate few who have jobs intact and can continue to take care of our families, perhaps ought to reflect more on what the less fortunate are going through.

What family businesses have faced is a sudden steep fall in demand, complete drying up of credit and no robustness to weather such a storm. Any well run company will find it difficult to handle this, as is very evident these days. But traditional family businesses are even more vulnerable - often difficult to change, don’t see the storm coming early enough and when the gale force winds are buffeting, don’t have the strength to keep standing. Like a mighty oak tree, they fall.

Its when they get into trouble that families discover that there is a double whammy. Closure of a family business is invariably concomitant with personal bankruptcy. For the fine print in any loan document has it that every personal asset of the borrower can be repossessed. This report captures this frightening phenomenon of double bankruptcies. Sure, the bloke should have read the fine print before he took on the loan. But honestly, who really does. Do we do it on the multitude of legal stuff we sign – if we did, we would never have a credit card for the blah blah in a credit card agreement is absolutely scandalous.

It’s a tough world out there. But when a family business, which has perhaps been in existence for two generations, falls, it’s a sad and poignant moment, Especially as the article says, for the family, its loyal customers and its even more loyal employees. I have to echo athivas’s comment on an earlier post – perhaps emotion has no place in the business world of today. Sadly , that seems to be true.

PS – If you were a tad surprised at this blog sporting a new look, its all thanks to the wonderful Srivats. Sri berated me for a blog that looked like a cross between an owl and a donkey. When I protested that it was because blogger is blocked where I live and I can’t change any layouts, he very kindly offered to do it for me. Where in the world can you find blogger friends like this. So he created a swank, funky look which I sheepishly argued wasn’t age appropriate for me. In exasperation Sri toned it down to the look that you see now. Thank you Sri – you are truly sensational.

Which alphabet shall it be ?

When will the world come out of recession ? How will the recovery look like ? Questions that are in our thoughts all the time.

Self appointed experts are falling over themselves predicting the answers to these questions. The flavour of the month seems to be to characterize the recovery after an alphabet.

Some economists are predicting a ‘V” recovery – a straight rise after the steep down. Other think it will be a “U” – down, flat and then up again. Nouriel Roubini, an economist noted for being one of the few to have thought a recession was coming before it came, thinks it will be a “W” . As economists have to invent a term for everything, this will be a “double dip” recession. Now Sir Martin Sorrell, chief executive of WPP, an advertising giant, thinks it will be a “L”.

Unfortunately, humility has not been a particular virtue of economists. The least they can do, after failing en masse to see a recession coming, is to keep quiet in penance. No. They are loudly proclaiming their ability to forecast the recovery. They talk about seeing “green shoots”.

At least the Economist was contrite enough to write a cover story – “What went wrong with economics”. It defends the science and its practitioners, of course, but it does accept the profession went so far wrong that it has virtually discredited itself.

Now I have some aspirations to being a “guru” myself – hence all the pontification in this blog !! I have an alphabet to predict the future too. Actually three.

World – please arise and take note. The recovery will be a 经济学 . This will be the exact shape of the recovery. For after all, this is Chinese for economics.


PS - If you see three squares instead of an alphabet in my prediction of the recovery, it means two things. First it means you are not sufficiently economics trained to understand my intricate prediction. Secondly, your browser settings are not set to see Chinese characters !